-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KdOWzKtlslrUW4yH4CYNCTSU4JQAA+0VbB7EQs0zr9rKHaQ5vQzsN6M6nPjFEZEu FokiAM7J5JjIgNBzaunnqQ== 0000884319-97-000006.txt : 19970502 0000884319-97-000006.hdr.sgml : 19970502 ACCESSION NUMBER: 0000884319-97-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970501 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ERO INC CENTRAL INDEX KEY: 0000884319 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED TEXTILE PRODUCTS [2390] IRS NUMBER: 363573286 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19942 FILM NUMBER: 97592933 BUSINESS ADDRESS: STREET 1: 585 SLAWIN COURT CITY: MOUNT PROSPECT STATE: IL ZIP: 60056 BUSINESS PHONE: 8478039200 MAIL ADDRESS: STREET 1: 585 SLAWIN CT CITY: MT PROSPECT STATE: IL ZIP: 60056-2183 10-Q 1 Form 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For The Quarter Ended March 31, 1997 Commission File Number 0-19942 ERO, INC. (Exact name of registrant as specified in its charter) Delaware 36-3573286 (State or other jurisdiction of incorporation (IRS Employer Identification or organization) Number) 585 Slawin Court, Mount Prospect, Illinois 60056 (Address of principal executive offices, including zip code) (708) 803-9200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____ At April 30, 1997, there were 10,274,300 shares outstanding of the Company's Common Stock ($0.01 par value). PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ERO, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) March 31, December 31, 1997 1996 (unaudited) ___________ ___________ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,364 $ 5,094 Trade accounts receivable, net of allowance for doubtful accounts 22,419 48,296 Inventories 25,237 22,058 Prepaid expenses and other current assets 5,067 4,085 Prepaid income taxes 3,084 --- ________ ________ TOTAL CURRENT ASSETS 57,171 79,533 ________ ________ PROPERTY, PLANT AND EQUIPMENT, at cost, net of accumulated depreciation 20,244 20,871 ________ ________ OTHER ASSETS: Deferred charges, net of accumulated amortization 2,592 2,648 Intangible assets, net of accumulated amortization 56,374 56,942 ________ ________ TOTAL OTHER ASSETS 58,966 59,590 ________ ________ TOTAL ASSETS $136,381 $159,994 ======== ======== The accompanying notes to consolidated financial statements are an integral part of these statements.
ERO, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) March 31, December 31, 1997 1996 (unaudited) ___________ ___________ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 9,393 $ 8,893 Accounts payable 7,765 9,389 Accrued expenses: Compensation 1,139 1,131 Commissions and royalties 2,578 4,793 Advertising, freight and other allowances 1,963 3,821 Other 2,160 1,600 Income taxes payable --- 70 ________ ________ TOTAL CURRENT LIABILITIES 24,998 29,697 ________ ________ LONG-TERM DEBT: Revolving loan 17,600 31,525 Term loan 43,500 46,000 Other loans 8,938 9,222 ________ ________ TOTAL LONG-TERM DEBT 70,038 86,747 ________ ________ DEFERRED TAX LIABILITY 696 536 ________ ________ STOCKHOLDERS' EQUITY: Preferred stock, $0.01 par value, 9,947,700 shares authorized, no shares issued and outstanding --- --- Common stock, $0.01 par value, 50,000,000 shares authorized, 10,394,300 shares issued 104 104 Capital in excess of par value 39,329 39,173 Foreign currency translation adjustment (365) 3 Retained earnings 2,354 4,507 Common stock held in treasury, 120,000 shares and 15,000 shares,respectively, at cost (773) (773) ________ ________ TOTAL STOCKHOLDERS' EQUITY 40,649 43,014 ________ ________ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $136,381 $159,994 ======== ======== The accompanying notes to consolidated financial statements are an integral part of these statements.
ERO, INC. CONSOLIDATED INCOME STATEMENTS (In thousands, except per share data) (unaudited) For the three months ended March 31, ____________________________________ 1997 1996 ____ ____ Net sales $19,939 $18,883 Cost of sales 13,814 13,264 _______ _______ Gross profit 6,125 5,619 Selling, general and administrative expense 7,763 7,553 _______ _______ Operating loss (1,638) (1,934) Interest expense 2,010 1,846 _______ _______ Loss before income taxes (3,648) (3,780) Income tax benefit (1,495) (1,552) _______ _______ Net loss $(2,153) $(2,228) ======= ======= Net loss per share ($0.20) ($0.21) Weighted average number of shares outstanding (in thousands) 10,652 10,364 The accompanying notes to consolidated financial statements are an integral part of these statements.
ERO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (unaudited) For the three months ended March 31, ____________________________________ 1997 1996 ____ ____ Cash flows from operating activities: Net loss $(2,153) $(2,228) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation of property, plant and equipmen 742 631 Amortization of other assets 715 847 Deferred income taxes 160 592 Provision for losses on accounts receivable 68 164 Tax benefit of stock options exercised 18 --- Changes in current assets and current liabilities, net of acquisitions: Accounts receivable 25,659 16,523 Inventories (3,304) (3,181) Prepaid expenses and other current asse (982) (611) Accounts payable (1,592) 102 Accrued expenses (3,469) (3,648) Income taxes payable (3,154) (4,398) _______ _______ Net cash provided by operating activities 12,708 4,793 _______ _______ Cash flows from investing activities: Acquisitions of property, plant and equipment (289) (448) _______ _______ Net cash used for investing activities (289) (448) _______ _______ Cash flows from financing activities: Net repayments under revolving loan facility (13,925) (1,275) Net repayments under term loan facility (2,000) (1,500) Net repayments under other loans (284) (182) Financing fees paid (78) --- Net proceeds from the exercise of stock options 138 --- Purchase of common stock for treasury --- (671) _______ _______ Net cash used for financing activities (16,149) (3,628) _______ _______ Net increase (decrease) in cash and cash equivalents (3,730) 717 Cash and cash equivalents: Beginning of period 5,094 154 _______ _______ End of period $ 1,364 $ 871 ======= ======= The accompanying notes to consolidated financial statements are an integral part of these statements.
ERO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - PRINCIPLES OF CONSOLIDATION: The accompanying interim consolidated financial statements include the accounts of ERO, Inc. (the "Company") and its wholly-owned subsidiaries, ERO Industries, Inc., Impact, Inc., Priss Prints, Inc., Amav Industries, Inc., ERO Canada, Inc. and ERO Marketing, Inc. These financial statements are unaudited but, in the opinion of management, contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial condition, results of operations and cash flows of the Company. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1996, as filed with the Securities and Exchange Commission. The results of operations for the three months ended March 31, 1997 are not necessarily indicative of the results to be expected for the entire fiscal year. NOTE 2 - INVENTORIES: Inventories at March 31, 1997 and December 31, 1996 consist of the following: March 31, December 31, 1997 1996 ___________ ____________ Raw materials $ 7,277,000 $ 6,823,000 Work-in-process 4,161,000 1,720,000 Finished goods 13,799,000 13,515,000 ___________ ___________ $25,237,000 $22,058,000 =========== =========== ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following discussion of the Company's results of operations and financial condition should be read in conjunction with the consolidated financial statements of the Company and the notes thereto contained herein, as well as included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996, as filed with the Securities and Exchange Commission. Results of Operations _____________________ Summary of Consolidated Financial Results (Dollars in millions) Three months ended March 31, _________________ Increase 1997 1996 (Decrease) _______________________________ Net sales $19.9 $18.9 5.3% Gross profit margin 30.7% 29.8% 3.0% Selling, general & administrative expense (as a percentage of sales) 38.9% 40.0% (2.8)% Interest expense $ 2.0 $ 1.8 11.1% The Company's first quarter results reflect the seasonal nature of its business. The majority of the Company's sales occur in the third and fourth quarters, while a substantial portion of its expenses remain relatively consistent throughout the year. Net sales for the first quarter of 1997 increased 5.3% to $19.9 million as compared to the first quarter of last year. The first quarter sales growth can be attributed to the Company's Slumber Shoppe and Priss Prints businesses whose emphasis on classic licenses resulted in gaining year-round placement at certain retailers. The gross profit margin for the quarter ended March 31, 1997 increased 3.0% compared to the prior year due to improved pricing on its licensed products when compared to a relatively weak performance in licensed products in the first quarter of 1996. Selling, general and administrative expense as a percentage of sales decreased 2.8% as the Company was able to control fixed cost spending in a period of increased revenues. Interest expense increased by 11.1% compared to the prior year due to higher interest rates and an increase in working capital requirements. Liquidity and Capital Resources _______________________________ Net cash generated from operating activities during the three months ended March 31, 1997 totaled approximately $12.7 million. These cash flows, together with cash on-hand, were principally used to repay $16.2 million under the Company's loan facilities and fund capital expenditures of $0.3 million. Management anticipates that cash generated from operations together with current working capital and the Company's credit facility will provide sufficient liquidity and capital resources to pursue the Company's current business strategy, including the funding of working capital, capital expenditures, and other needs. PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is currently involved in several lawsuits arising in the ordinary course of business. The Company maintains insurance covering such liability, and does not believe that the outcome of any such lawsuits will have a material adverse effect on the Company's financial condition. Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information Recent Events On April 10, 1997, the Company entered into an Agreement and Plan of Merger ("Merger Agreement") with Hedstrom Corporation and HC Acquisition Corp. (the "Purchaser"). Pursuant to the Merger Agreement, on April 17, 1997, the Purchaser commenced a tender offer to purchase all of the issued and outstanding shares of common stock of the Company at $11.25 net per share in cash. Item 6. Exhibits and Reports on Form 8-K A Current Report on Form 8-K dated April 10, 1997 regarding the Company's merger agreement with Hedstrom Corporation was filed with the Securities and Exchange Commission on April 16, 1997. SIGNATURES __________ Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: April 30, 1997 ERO, Inc. /s/ Mark D. Renfree ________________________________ Mark D. Renfree Senior Vice President of Finance and Chief Financial Officer EX-27 2
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheets and Consolidated Income Statements and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1997 MAR-31-1997 1,364 0 22,419 0 25,237 57,171 29,710 9,466 136,381 24,998 70,038 0 0 104 40,545 136,381 19,939 19,939 13,814 13,814 0 0 2,010 (3,648) (1,495) (2,153) 0 0 0 (2,153) (0.20) (0.20)
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